Inflation is simply the increase of the price of goods and services that we, as the American people, purchase on a day to day basis. So, let's say that you buy a gallon of milk, eggs, toilet paper, fruit, and a lawn chair. Well, if those same items go up in price the next year, that's inflation.
Why is Inflation Important?
That's an easy one. Let's say that you make $50,000 a year before taxes. If inflation is measured at 3%, then that means that goods and services you buy during the year are 3% more expensive than they were last year. So, as a whole, eggs, butter, milk, rent, insurance etc etc are all increased on average of 3%. Essentially, that $50,000 will buy you 3% less than it would the year before.
That's not so bad, right? We'll get into that more in a second. But, if inflation goes up 3% every year for 5 years, then that's 15%. That means after 5 years, if you're income didn't increase, then your salary of $50,000 now buys 15% less than it did. That's a hefty amount if you ask me.
Our banking system, as previously discussed, is a central bank. Meaning, all of our money comes from one source. All other banks get the money, either directly or indirectly, from the central bank, and you and I get our money from the central bank. It all originates from the source. In addition, the central bank, also called the federal reserve, charges interest to banks in order to get money from them. So, since this money is dealt out at interest there's only one thing that can happen, they money supply as a whole will constantly increase.
For example, let's say the federal reserve is loaning money to Bank of America (because Bank of America only has one source to get the money). It loans it to Bank of America at 2% interest. Then, Bank of America will loan it to you, me, or another business at 4% for a home loan, car loan, or whatever the case may be. Now, the Bank has made a profit off the money, and so has the federal reserve. Please review previous parts of the Econ 101 if this does not make sense.
Well, the main problem with this is that interest is owed to an entity, the federal reserve, that CREATES money in the first place! Let me say this again. In the above example, Bank of America would be paying interest to an entity, the Federal Reserve, the one and only creator of money.
Does this make sense? What does an organization that creates money as it's primary job, need interest payments for? Well, the result is that it simply creates inflation. The system is designed to cause inflation. In theory, the idea is to control the inflation and make it manageable. But, does it work? Well, let's investigate this further.
What's the message? The distorted message is that inflation is moderate and well under control.
The message that inflation is under control is delivered in several ways. The lamestream media will tell you this, politicians may say it, but the most commonly quoted method for measuring inflation is the Consumer Price Index (CPI). Let's take a look at how this works.
The CPI takes a basket of goods that the US Bureau of Labor & Statistics deems "typical" for all Americans (I believe it's 87% of Americans according to them).
But, here's the problem. The CPI leaves out two key elements in it's measurements... food & energy. I don't know about you, but in a year's time, a huge, huge portion of my spending goes to food and energy. How much gas do you put in your car each month? Or, what about your electric bill? How much of your income goes to food and groceries?
"Numbers Don't Lie, People Lie"
As a culture, we're conditioned to "trust the numbers". In reality, numbers are nowhere near as objective. Numbers, such as the CPI, can easily hide the computations or assumptions of whoever did the calculations.
Usually I absolute hate mainstream media (CNN, CBS, NBC, ABC, WSJ, NY Times etc etc) but in May 2005 CNBC did a news story on government statisticians. The story revealed that the statistics produced aren't nearly as concrete as you would assume. In fact, they're quite arbitrary. discussed the Consumer Price Index, the top U.S. inflation indicator. After reviewing all the facts, CNBC concluded that the CPI is rigged, and not representative of the true rising cost of living that is widely reported. CNBC discovered that government statisticians arbitrarily evaluate an item, like a computer, by comparing the cost of the same computer last year, but since this year's model has more features, they calculate that the net price has dropped by 29 percent. No joke!
If that isn't bad enough, not only are the numbers arbitrarily given in many cases, but the CPI is changed year to year. The same goods are not included in it each year! So, if they good can be changed, then how can we get a reasonable estimate of inflation?
Stamp Price Index reveals "real world" inflation
Here's another way to judge the true rate of inflation using the U.S. Postal Service stamp price statistics. According to the government, the cost of a postage stamp reflects only true cost-of-living increases, since the USPS is not-for-profit, right? USAToday reports, "The price for a first-class stamp jumped by 517 percent between 1970 to 2004, compared to the official CPI inflation gauge which has only registered a 293 percent increase." That means in 1970 a $10,000 car now costs $51,700, instead of $29,300. That's a whopping 76 percent discrepancy!
If we use the price of a postage stamp index as a "real world" inflation gauge, we've had substantially rising inflation during a time the government has reported that inflation is almost nil. And in 2005, the U.S. Postal Service is proposing another increase in the price of a first-class stamp from 37 cents to 39 cents a 5.4 percent rate increase.
In whose numbers can you trust?
It was a British economist who first said, "I never trust anything the government says until they officially deny it!"
A sad statement, but apparently true regarding government statistics.
The numbers that you can trust are not as easily found. Finding "real world" statistics involves stripping out the political-financial spin by cross-checking the numbers with multiple sources.
For example, if a financial broker reports a certain rate of return over a period of time for a particular investment, don't just accept it, do an Internet search to see if the numbers quoted have really panned out over the long term.
Financial research takes time and energy, but the alternative is to passively take a loss year after year. My fear is that when consumers finally wake up, they'll suddenly find themselves so far behind the curve that it will be too late to do anything about it.
Next time you hear that the CPI figure is this, or the GDP figure is that, keep in mind that these numbers are calculated with a hidden purpose to help bolster public confidence in government and Wall Street. The fabric of U.S. confidence is badly torn and now the whole system is in jeopardy of exposure including your money.
A great website to find out the real numbers like unemployment, CPI, and other information is Shadow Stats. It's a great resource and I highly recommend checking it out. I've included their inflation chart below.
As you can see, if inflation is calculated using commodities like food and energy, things that we purchase everyday, then inflation is much more rampant. In fact, it's hovering in the 8%-10% range as I write this.
So, what's it matter to me?
Back to my original example, if you make $50,000 a year, and inflation is reported at 3%, you lose 3% of your money because it now purchases less than it did the year before. Many times, if you're on a fixed salary, you're income will increase to reflect the increase in cost of living. So, your employer may increase your salary 3% next year due to the "cost of living" increasing aka inflation.
If your employer increases your salary 3% and real, true inflation is 8%, then you just lost 5% of your purchasing power for that year! Do you see the sobering reality of this?
What about if this trend continues for 5 years?! After 5 years you would have lost 25% of your purchasing power! That's 1/4 of your income and your real wealth just decreased 25% in 5 years! After 10 years you would lose 50%!!! Granted, it may not be 5% each year, but it could be 3% or 2% difference, but that's a BIG deal when added up!
This should make you angry! Or, let's say you're among the more educated on this subject. You decide that in order to curb your loss of wealth due to inflation, you go out and buy an investment that returns 7% annually. If you can find one with that high of a return, you will still lose 1-2% a year!
How many people do you know that think a 7%-8% return on their investments is a great return? How many investment banks boast of their great and consistent returns of 7%-9% a year?
Congratulations On Covering Inflation, Because That's All You Did!
Later posts will focus on what you can do to protect and grow your wealth and how the government, the federal reserve, and the wealth bankers benefit from this awful injustice against you and I.
Let Freedom Ring!
B.
How many people do you know that think a 7%-8% return on their investments is a great return? How many investment banks boast of their great and consistent returns of 7%-9% a year?
Congratulations On Covering Inflation, Because That's All You Did!
Later posts will focus on what you can do to protect and grow your wealth and how the government, the federal reserve, and the wealth bankers benefit from this awful injustice against you and I.
Let Freedom Ring!
B.
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